A recent scandal involving a Green Beret who was arrested for betting on a classified U.S. raid may be more than just an isolated incident. According to a new study, it could be an extreme example of the small group of informed traders who actually influence prices on platforms like Polymarket, while the majority of participants end up losing money. The study, which analyzed over 1.72 million accounts and $13.76 billion in trading volume on Polymarket, found that just 3% of traders are responsible for the majority of price discovery, consistently predicting outcomes and moving prices in the right direction.
In contrast, the remaining 97% of traders provide liquidity and generate volume but tend to be on the losing side of trades against the informed minority. The researchers used a method of rerunning each trader's bets 10,000 times to filter out luck and determine skill, finding that among the biggest winners, only 12% consistently outperformed the benchmark. The study's findings suggest that the activity of skilled traders improves market accuracy, particularly in the final stretch before resolution, and that they are the first to react to new information. However, the same edge that makes these traders valuable to price discovery also raises concerns about the risk of insider trading, which could have significant implications for the integrity of prediction markets.